Expert Witness Confirms Tax Bill Encourages Corporations to Outsource Jobs, Keep Profits Overseas

Brown’s Patriot Employer Act would Reward Corporations who Keep Jobs in the U.S.

WASHINGTON, D.C. – While questioning an expert witness before the Senate Finance Committee today, U.S. Sen. Sherrod Brown (D-OH) highlighted how the GOP tax bill would encourage corporations to outsource jobs. Brown’s Patriot Employers Tax Credit would reward employers who keep jobs in the United States and pay workers well – encouraging them to create even more good-paying jobs in the U.S.

 

During a Senate Finance Committee hearing today to continue debate on the Senate GOP tax reform proposal, an expert tax witness confirmed to Brown that the tax bill encourages corporations to outsource jobs:

Brown: So there is, in fact, a tax incentive in this bill on manufacturing, but the tax incentive is to move jobs out of the United States under this bill. Correct?

Abraham: That is, under the situations you have described, there seems to be an incentive under the Chairman’s mark to achieve a lower tax rate by having manufacturing outside the U.S.

The tax expert also confirmed to Brown that the current bill would incentivize companies to keep their profits overseas:

Brown: The bill introduced by Senate Republicans has a minimum tax rate for profit that can be attributed to so-called “intangible assets” – things like intellectual property, trade secrets that are kept offshore. But, as I read it, there is no minimum rate for real business activity overseas. That means that every U.S. Corporation would have an incentive to keep profits overseas. Is that correct?

Abraham: Yes, there is no tax on routine returns for U.S. companies operating overseas.

Brown: So, it really does incent those companies to keep their profits overseas. Correct?

Abraham: Yes.

Read more of Brown’s questions from today’s hearing below. Download production quality footage of Brown’s questions HERE.

Brown: So, the minimum tax in this bill does not tax ‘routine overseas returns’ at all. In other words, there is a zero rate of taxation on profits held overseas. Is that right?

Abraham: Yes.

Brown: So, would that same U.S. Corporation get to exclude a ‘routine’ return on the investment made in the U.S.?

Abraham: No.

Brown: So a large U.S. multinational corporation could shut down a factory in St. Louis or Cleveland , deduct the costs of moving, build a new factory in a low-tax country in Asia and pay no further U.S. tax on that factory assuming it is only earning routine returns. Is that correct?

Abraham: Yes.

Brown: But those same earnings – contrast this – those same earnings would be subject to full U.S. tax if that same factory was built in Akron, Ohio?

Abraham: Yes the U.S. rate is dropped to 20 percent, but if that same facility is in foreign jurisdiction and is only earning routine returns there’s no further tax under the territorial system.

Brown: So there is an investor in Summit County, Ohio – home of Akron and Barberton, two cities in Summit County – and that investor decides to build in Akron. That investor is paying 20 percent on his taxes under the Republican plan. But moving that plant overseas the investor would pay zero?

Abraham: That’s my understanding of the Chairman’s mark.

Brown: So, under the Senate bill, what the statutory U.S. tax rate would be for a U.S. corporation that hires American workers, to manufacture products in Akron and sell them around the world? What is their statutory rate?

Abraham: It’s 20 percent there is the loss of the 199 manufacturing deduction so there is a 20 percent top corporate rate.

Brown: Now what would the statutory U.S. tax rate be for a U.S. multinational that instead of manufacturing in the U.S. decides to incorporate in a tax haven like Ireland or even in a lower rate tax haven, and starts manufacturing in a low or no tax jurisdiction area?

Abraham: My understanding under the Chairman’s mark is there would be no U.S. tax on that earnings and profits, assuming there are only routine returns associated with that manufacturing.

Brown: So there is, in fact, a tax incentive in this bill on manufacturing, but the tax incentive is to move jobs out of the United States under this bill. Correct?

Abraham: That is, under the situations you have described, there seems to be an incentive under the Chairman’s mark to achieve a lower tax rate by having manufacturing outside the U.S.

 

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